Breaking a SEPP and then restarting
L1: Breaking a SEPP and then restartingI am 57 (birth date: 6/6/1959) and just started a SEPP in January this year. If I break the SEPP because of immediate need of additional funds from the IRA, will I then be able to establish a new SEPP with my IRA custodian?2016-08-04 02:13, By: Robert, IP: [220.127.116.11]
L2: Breaking a SEPP and then restartingYes. You will owe taxes on all of your SEPP distributions, plus an additional 10% penalty on the amount of those distributions.
However, if your cash need is immediate, but will not be needed in the coming months thru 12/31, you are allowed to change your distributions from monthly to take the rest of your 2016 annual distribution now, and then take an accelerated amount of your 2017 annual distribution in the early months of 2017.
On the other hand, if your needs will also be in excess of the remaining amount for 2016, then the new SEPP distributions can be 5/12 of your IRA balance on 7/31 (or any higher balance in the last few months), or can even be 100% of the new ANNUAL distribution calculated on that balance.
I’m not sure if you could limit your penalty by starting your new SEPP as of 6/30, and save the 10% penalty on the July distribution (and on the August distribution if you already took it).
Also, be careful that you don’t throw yourself into a higher tax bracket. I suggest reviewing your situation with a tax practitioner and/or a financial planner who understands the nuances of SEPP 72-T plans.2016-08-04 04:22, By: dlzallestaxes, IP: [18.104.22.168]
L3: Breaking a SEPP and then restartingIf you bust your current plan, you can then start a new plan. However, the devil is in the details including how you report this andwhether youare able tostructure a new plan to last 5 years. Your IRA maysimply be too small to support a new plan as there is no sense in starting a new plan if your distribution needs will be more than the plan can generate as you will eventually have to bust that one too.
You probably have already withdrawn the full annual calculation for 2016 if you need more funds. If so, youwould have to paythe penaltyon your distributions to date, and start a new plan right now under which you would start from scratch. If you start a new plan in August under which you take a full annual distribution in 2016, you would have to pay the penalty on all distributions taken up to August. Before starting a new plan, transfer the balance of your IRA to a new account. That way, you will get one 1099R for the first IRA coded 1for which youwould pay the penalty. You would get another 1099R for the new account number for the new plan under which you could take a full annual distribution and file a 5329 showing the SEPP exception.
However, under a new plan you would need to take 60 months of distributions (5 years) to the dollar or your new plan would also be busted at some point. I am just speculating on the problem at this point, and would need more specifics on your situation and needs in orderto determine how youmight be able toproceed from here with no more penalized distributions than you have already taken.2016-08-04 04:51, By: Alan S, IP: [22.214.171.124]